Due diligence (red-flag review)

Due diligence is the systematic review of a target company before acquisition — legal, financial, tax, operational and, where relevant, environmental. In regular M&A, a full review typically takes six to twelve weeks and relies on an extensively populated data room with reliable historical figures.

In insolvency there's usually no time for that: the administrator needs a buyer within a few weeks, the data room is incomplete, and figures from the crisis period are often not very informative. Practice is therefore red-flag due diligence — instead of checking every detail, buyers target the points that can kill a deal or massively shift the price: title to core assets, ongoing contracts under § 103 InsO, continuing obligations under § 108 InsO, employee transfer under § 613a BGB, IP/licence rights, and legacy environmental liabilities on operating real estate.

Important for buyers: the administrator sells almost always without warranties (the exclusion under § 444 BGB doesn't cover fraudulent concealment, but is otherwise market standard). That shifts the review risk entirely onto the buyer — whoever doesn't find the red flags themselves carries them alone after closing.